Tuesday, August 3, 2010

KO/Sold COP at 57.44/Bought BKRS and MWA as Lottery Tickets/Added 200 GDV at 13.33 & Sold ETF PIQ at 20.97/Bought 100 of the CEF CSQ in Roth at 8.49

The July purchasing manager's index for the 16 countries using the Euro was revised up to 56.7 from an earlier estimate of 56.5. .markiteconomics.com PDF. This index is similar to the ISM index in that any reading over 50 indicates expansion.

The ISM manufacturing July survey was a better than expected 55.5. New orders, however, contracted to 53.5 in July from 58.5 in June. The employment component increased .8 to 58.6. ISM

The S & P 500 closed several points above its 200 day moving average yesterday. ^GSPC: Summary for S&P 500

The outlines of the strategy summarized briefly in yesterday's post, Coping with the Federal Reserve's Jihad Against Savers, is similar to all of LB's multi-prong strategies, with layers on top of layers and a lot of moving parts. RB just added that the more appropriate descriptions for all of the plans hatched by the LB would be "convoluted" and "overly complex". The most important part of the strategy was the time period of its inception along with the initial identification of securities in the summer of 2008 that could work in both inflation and deflation scenarios. Prior to that time, I had not devoted any time to identifying, or learning about synthetic floaters and floating rate preferred stocks with minimum guarantees.

1. Coca Cola (own): Barrons had a follow-up in this week's edition on earlier article in 2009. The article points out the remark made be the CEO Muhtar Kent that North America will be a "growth market" for the next 10 years and beyond. What stunned many analysts from the second quarter report was a 2% volume gain in North America, the first such gain since 2006. Prior to the last quarter, the consensus view- which I shared- was that KO's growth opportunities were primarily in emerging markets. The article quotes an analyst, Caroline Levy, who believes the shares will hit $63 in a year. A more subdued analyst, Todd Lowenstein, believes that the market will not give KO any credit for a resumption of North American growth until a sustainable trend is established. I would tend to agree with that opinion, but I would agree with Ms. Levy's one year target as doable. I doubt that KO needs growth in North America to reach that price target. At a $63 price and a current estimate of $3.47 in 2011, KO would be selling at a 18.15 P/E. Historically, such a multiple would be closer to the lower end of KO's range than to a top. I would not add shares at that price, however. The historical yearly P/E range can be found in the S & P report on Coca Cola. An 18 P/E is shown in the S & P report as the low for 2006 and 2007, and lower than the low number for 2000-2005. S & P has KO rated 5 stars with a $65 price target in its report dated 7/31/2010.

My primary reason for owning KO shares is its long standing history of growing its dividend, with the recent history of dividend growth resulting in a doubling of the dividend in seven years. I discuss this point in more detail in Item # 1, Barrons Recommendations and My Trades. Buy of KO at 38.72 ADDED 50 KO AT 54.26 The position in KO is near the maximum permissible limit allowed by one of LB's rules.

2. Added 200 CEF GDV at $13.33 and Sold 50 of the ETF PIQ at 20.97 (see Disclaimer): PIQ was bought at $19.81 in November 2009. Bought 50 ETF PIQ at $19.81 I was not satisfied with its performance against any benchmark. Possibly it would perform better during a long term secular bull market in stocks. Another consideration is its negligible dividend.

In the place of PIQ, I added another 200 shares of the CEF Gabelli Dividend & Income Fund (GDV) at $13.33. This stock CEF pays a monthly dividend, currently at six cents, but the fund recently announced an increase to 7 cents for the September distribution. The Gabelli Dividend & Income Trust Continues Monthly Distributions of $0.06 Per Share for July and August and Raises the September Distribution from $0.06 to $0.07 Per Share. If the fund continues that 7 cent per month distribution, the annualized yield based on a $13.33 total cost would be about 6.3%. I do not reinvest the dividend for GDV.

At the time of my purchase GDV was selling at more than a 14% discount to its Net Asset Value. GDV had a NAV of $15.33 on Friday, 7/30/2010 and a closing price that day of $13.13, resulting then in a discount to NAV of 14.25. WSJ.com; CEFA - Closed-End Fund Association

On Monday, 8/1/2010, GDV closed at $13.33 and the NAV was $15.73. So the market price increased 20 cents and the NAV was up 40 cents. This expanded the discount to -15.26 as of yesterday's close.

This fund uses leverage. This is a link to its last filed quarterly report filed with the SEC. This is the link to the Morningstar page on GDV.

3. Bought 100 of the CEF CSQ in the Roth IRA at $8.49 (see disclaimer): CSQ is classified as a preferred stock CEF even though its portfolio includes about 49% in common stocks. Calamos Investments - Strategic Total Return Fund I bought it to give the bond heavy retirement accounts a tad more exposure to stocks. CSQ was selected since it pays monthly dividends, the yield was close to 7.45% at a total cost of $8.49, and the shares were bought at over a 12% discount to net asset value. CSQ

This fund is leveraged, and CSQ did reduce its monthly distribution from $.0625 to the current $.0525 in November 2009: Calamos Investments - Strategic Total Return Fund I will start to reduce my exposure to leveraged funds when the 3 month LIBOR rate rises above 1.5%. I would be more likely, however, to reduce my exposure to leveraged bond CEFs before leveraged stock ETFs.

This is a link to the SEC Filed semi-annual report for the period ending 4/30/2010.

As of yesterday's close, this CEF had a NAV of $9.71 per share and was selling at a -12.87% discount to its NAV based on the closing price of $8.46. WSJ.com

4. Bought 40 BRKS on Monday at $7.72 and 50 MWA at $3.74 Last Friday ( LOTTERY TICKET category) (see disclaimer): As with all LT purchases, it does not matter what happens on the downside given the immaterial exposure in the investment. I mentioned in an earlier post that I was re-starting this strategy primarily to entertain the RB and keep it from causing any real trouble. Re-Starting LT Strategy

Since I discussed both of these companies in earlier posts, I will simply refer anyone interested in them to those earlier posts. I previously bought Brooks Automation (BRKS) at 8.62 and sold those shares at 10.2. The small profit allowed me to increase my exposure over the $300 limit permitted for Lottery Tickets, since this rule permits adding previous profits to the $300 maximum. I was therefore able to buy 40 shares of BRKS this time rather than just 30 shares.

Mueller Water (MWA) was previously purchased at $3.62 and sold at $5.61.

Brooks did report a profit for the Q/E 3/31/2010 of 33 cents, and 16 cents on an operating basis. e10vq On 7/13/2010, the stock popped over a buck to $9.03 per share (BRKS) after the company raised guidance for the 3rd quarter to 22 to 24 cents on better then expected revenue of 156 to 157 million. SEC Filed Press Release The street was then expecting 19 cents.

5. Sold 50 COP at $57.44 Yesterday (see Disclaimer): COP just went ex dividend and the percentage gain from my recent purchase at 48.75 was just too much (almost $500), too fast (less than a month), to pass up. The COP shares were bought in one of the satellite accounts, where the stock purchases are simply viewed as temporary placeholders for money market funds earning nothing. It would take a lot of money earning .1% to generate almost $500 in a year, something like $500,000. This transaction will be consequently viewed as a success, irrespective of what happens to the upside hereafter in the COP price, particularly given that it was funded out of idle funds in a money market account.

I also bought an exchange traded, principal protected note from Citigroup Funding yesterday which I will discuss in the next post.

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